But the cash-strapped country still has a lot to do to convince its partners it deserves more help beyond the summer.
Creditors in the 19-country eurozone endorsed Greece’s request for the extension after the European Commission, European Central Bank and International Monetary Fund – the main institutions handling Greece’s loans – backed a list of reforms that Athens proposed in a letter on Monday.
Greece had to draw up the list, which includes measures to combat tax evasion and corruption, to get the bailout extended. Without a financial lifeline over the coming few months, it faces the possibility of going bankrupt, imposing capital controls and ditching the euro.
Yesterday’s deal came just days before the country’s €240 billion bailout programme expires and is aimed at buying time for both sides to agree on a longer-term deal to ease the burden of the bailout loans. Greece will, in all likelihood, have to negotiate a new financial agreement with its creditors to see it past June, when large bond repayments are due.
“The three institutions agreed to start the process with this,” eurogroup president Jeroen Dijsselbloem said. “They thought it was a serious enough list and all the countries have just agreed with that in the meeting so we can start.”
The extension must now be approved by some national parliaments, including Germany’s, before midnight on Saturday.
Until last Friday’s eurogroup meeting agreed that Greece’s bailout could be extended provided it came up with an acceptable reform package, there had been growing concerns the country would run out of money and be forced out of the euro.
The new left-wing Syriza government was elected to get rid of the austerity measures that accompanied the rescue money Greece accepted after it was unable to borrow in international markets.
It blames the spending cuts and tax rises, as well as unfair economic reforms, for the damage done to the Greek economy.
Despite a return to modest growth in 2014, Greece’s economy is about a quarter smaller than it was in 2008 and unemployment and poverty levels have swelled dramatically.
The reform plans, which the Greek government says will not impact on the country’s fiscal situation, were sent just ahead of Monday’s deadline and have met with a favorable response in the markets. The main stock market in Athens was up around 9.8 per cent in late afternoon trading yesterday.
“We can stop worrying about Greece for now,” said Chris Beauchamp, IG senior market analyst.
Greece still has a lot to do to convince its creditors that it can deliver substantive change.
“We call on the Greek authorities to further develop and broaden the list of reform measure,” the eurozone said in a statement yesterday.
Mr Dijsselbloem also urged Greece to move quickly, noting that the reform programme needs to be updated and implemented within four months.
The IMF was most downcast of all, insisting the vague promises in yesterday’s list now needed to be turned into real action.
In a letter, IMF managing director Christine Lagarde said in many key areas, the list “is not conveying clear assurances that the government intends to undertake the reforms envisaged”.
Ms Lagarde specified there were no “clear commitments to design and implement” reforms to pensions and sales taxes, or “unequivocal undertakings” to continue previously agreed policies to open up closed sectors, on administrative reforms, privatisation and labour market reforms.
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